The Budget Deal of December 2013
This past week the US House of Representatives voted 332 to 94 in favor of changes to the federal budget for 2014. The House vote in effect adopted the proposals of the ‘Joint Congressional Committee’, chaired by Teaparty House leader, Paul Ryan, and Senate Democrat, Patty Murray, set up in October as part of the interim agreement between the two parties to end the more than two week shutdown of the federal government that month.
The October interim agreement called for the Ryan-Murray committee to provide budget change proposals by December 2013 for a Congressional vote by December 13, 2013. Last week 169 Republicans and 163 Democrats in the House voted for the Ryan-Murray proposed changes to the 2014 budget; 62 Republicans voted no, as did 32 Democrats. The measure now goes to the Senate for what will likely be a formal vote of adoption, and then in January to a Congressional Appropriations committee in time for meeting the mid-January 2014 deadline date agreed to last October for changes to the federal budget.
The Official ‘Spin’
The deal agreed to this past week by both wings of the single Party of Corporate America (POCA)—aka Democrats and Republicans—has been hailed as a pragmatic, albeit ‘narrow’ agreement that shows the two wings can once again agree on fiscal changes and deficit cut matters, thus ending an era of dysfunction that has characterized US government since 2010. The narrow budget deal, amounting to only $85 billion over the next two fiscal years, 2014-2015, is also being defined as the end of efforts to reach a ‘grand bargain’ on taxes and deficit cutting, as well as the end of the Republican wing Teaparty faction’s ability to disrupt government to promote its own interests and Teaparty candidates in Republican primaries. However, none of these arguments ‘spinning’ the budget deal are accurate.
The dysfunctionality may have ended for the interests of corporations, investors, and wealthy Americans, i.e. the 1%, but it hasn’t for the remainder of households, as the details of the recent deal below clearly illustrate. Last week’s Ryan-Murray deal clearly promotes the interests of defense corporations, the Pentagon, and the wealthy—at the direct expense of millions of US government workers, millions more unemployed, veterans, retirees, and tens of millions of Americans on food stamps.
The deal furthermore represents not the reversal of ‘austerity’, as is claimed, but rather a clever restructuring and continuing of austerity in new forms. It reflects a ‘grand bargain’, but a bargain achieved in stages, piecemeal, rather than in an ‘all in’ form that might generate more severe and resentful public political reaction.
Not least, the deal just concluded represents not the ‘taming’ of the Teaparty faction in the Republican wing, but instead the realization by the rest of the two traditional wings of POCA that, in the 2014 midterm Congressional election year about to begin, they had better go slower on austerity in 2014—as they had previously during the 2012 national elections year. The deal is thus a ‘politicians deal’, and neither a fiscal stimulus nor a deficit cutting exercise.
Restoring the Sequester Defense Cuts
In 2011 House Republicans and the Obama Administration agreed to cut $1 trillion in discretionary social spending programs, mostly education, plus another $1.2 trillion of discretionary cuts deferred until 2013 called the ‘sequester’, about half of which represented defense spending cuts.
The 2012 election year that followed was a hiatus in terms of austerity and new deficit cutting. However, once the November 2012 elections were over, both wings of the POCA immediately proceeded to the ‘fiscal cliff’ deal of January 2, 2013, which raised taxes on wage earners while allowing $4 trillion in Bush tax cuts to continue for another decade. However, the fiscal cliff deal of January 2013 conveniently left the matter of the ‘sequester’ spending cuts for a later date, including the $600 billion in defense cuts. That segmenting of tax issues from spending issues, and especially defense spending, was necessary to enable the full passage of the $4 trillion in tax cuts for the rich. A more complicated deal, including spending reductions, would have risked the passage of the tax cuts.
Beginning March 1, 2013, the $1.2 trillion ‘sequester’ spending cuts were allowed in 2013 to take full effect for non-defense spending, while defense spending cuts called for in the sequester were shielded and offset in various ways by the Obama administration, with the concurrence of Congress, during 2013. Pentagon spending this past year continued at the $518 billion level (not counting another $100 billion or so for ‘overseas contingency operations’—i.e. direct war spending).
That both the House Republicans and Senate controlled Democrats had every intention throughout the past year to restore the Defense spending cuts called for in the sequester, was evident in the House Budget and Senate budget proposals, both of which called for increasing Pentagon spending to $552 billion in 2014, according to a New York Times front page article of December 11, 2013.
The just concluded Ryan-Murray budget deal is also primarily about addressing (and reversing) those defense spending cuts and continuing to shield defense from current and future spending reductions. Were the sequester defense spending cuts allowed to go into effect in 2014, Pentagon spending would have declined from current $518 billion in 2013 to $498 billion in 2014. The Ryan-Murray budget deal sets Pentagon spending for the coming year at $520.5 billion.
As the Washington Post indicated in a lead article on December 12, with the recent budget deal the US House has temporarily retreated from deficit cutting “in favor of Republican concerns about the Pentagon budget”, with the Wall St. Journal adding on December 13 that the budget deal is “nearly erasing the impact of sequestration on the military”.
That the budget deal is primarily about restoring defense cuts was further evident in that the same day the budget deal was passed by the House, it immediately voted to pass the National Defense Authorization Act, NDAA, thus locking in the restoration of Pentagon spending in 2014 at a level above 2013.
Domestic Non-Defense Spending: Smoke & Mirrors
While the proposed sequester defense cuts have been essentially restored for 2014-15, and effectively removed from further deficit spending cuts in the future (as had tax hikes on the rich with last year’s fiscal cliff deal), the cuts to discretionary non-military spending programs have not fared as well.
The budget deal calls for restoring $63 billion in total scheduled sequester cuts for the two years, 2014-15. Non-defense program spending restoration is reportedly $31 billion of that. It thus appears that a $31 billion increase in non-defense spending is part of the deal. But domestic spending the past two years, 2011-2013, has declined from a total of $514 billion to $469 billion, or $45 billion. The budget deal raises that to $492 billion. That’s $23 billion, not the reported $31 billion.
Moreover, the $31 billion restoration is predicated on the continuation in the budget of the reductions in payments to Medicare doctors and health providers. If the reductions in payments are rescinded, as they have been every consecutive year thus far for more than a decade, then the $31 billion non-defense spending restoration might very well also be taken away or significantly reduced. $31 billion may not in fact, in other words, actually occur.
Apart from the possible $31 billion reduction, what Congress and Obama appear to restore in in the $31 billion discretionary social spending on the one hand, they are taking away—plus more—with the other. This will occur two ways: first by raising $26 billion in fees (i.e. de facto taxes) on consumers and by taking money from federal workers and veterans pensions; second, by taking $25 billion from the unemployed. So the net effect is a reduction of -$20 billion, not a restoration of $31 billion.
The budget deal directly includes increasing ‘fees’ by $26 billion. $6 billion of that comes in the form of raising federal employees’ pension contributions and another $6 billion by cutting military cost of living increases for military pensions. Another $12.6 billion comes from raising government taxes on airline travel. Thus retirees, government workers, and middle class households will pay $26 billion more as part of the budget deal. But that’s not all.
The budget deal cleverly does not include the $25 billion in cuts to unemployment benefits in its calculation of spending $31 billion more in domestic spending. When deducted from the $31 billion, it’s only a net $6 billion in domestic spending. And when the $26 billion in fees (taxes) are added in, that’s a total of -$20 billion in domestic spending.
Another way of looking at it is that $25 billion in cuts to unemployment benefits is that the amount is just about the same amount of restored defense spending cuts. The unemployed are effectively paying for the defense corporations’ continuation of defense contracts at prior levels.
More than 1.3 million workers will immediately lose their unemployment benefits on December 28, 2013. Another 1.9 million who were projected to continue benefits in 2014 will also now lose them. Emergency benefits that up to now included extended benefits from 40-73 weeks, will now revert back to only 26 weeks. This occurs at a time when 4.1 million workers are considered long term unemployed, jobless for more than 26 weeks. Knocking millions off of benefits will likely result in 2014 in even more millions of workers leaving the labor force, which will technically also reduce the unemployment rate.
That’s one way to manipulate statistics to formally reduce unemployment, but it’s not a true reduction of unemployment by actual jobs creation, the latter of which is increasingly a problem of the US economy for more than a decade now.
The budget deal conveniently disregards in its calculations the refusal to extend unemployment benefits. But it’s clearly part of the deal. The failure of the budget deal to extend unemployment benefits, and the net -$20 billion in unemployment benefit cuts plus fee hikes, is an indication of the budget deal’s continuing ‘austerity’ focus. But that’s not all.
Another ‘off track’ discretionary spending cuts about to occur involve cuts to food stamps for millions of recipients, scheduled to occur by February 2014. Today one in eight households now receive food stamps, the result of the deep decline in jobs since 2008, the failure to create jobs at a normal rate since then, and the fact that jobs that have been created since 2008 are predominantly low paid. The cost of the food stamp program, SNAP, has doubled to $80 billion during the so-called Obama economic recovery and the abysmal record of job creation the past five years.
Both wings of the POCA are concurrently proposing cuts to SNAP, ranging from $24 billion for the Demo wing and $52 billion for the Teapublican (traditional republicans + Teaparty faction) wing. An increase in food stamps that was scheduled for November 1, 2013 has already been put aside. Further reductions are being negotiated that will conclude by February 2014 that will likely reduce food stamp spending by $8-$10 billion over the two year period, 2014-2015 of the recent budget deal period. As in the case of the $25 billion in cuts to unemployment benefits, the $8 billion more in food stamps spending cuts are conveniently ignored in the budget deal calculations.
The real budget deal thus amounts to $31 billion in domestic spending cuts restored from the sequester—offset by $26 billion paid for by government workers, retirees and vets, by another $25 billion paid for by the unemployed, and still another $8 billion by the poor and working poor in food stamp cuts. What the budget deal gives (+$31 billion) with one hand, it takes away double (-$59 billion) with the other. The net result is a -$28 billion reduction for workers, retirees, vets, and the unemployed, while the Pentagon and defense corporations get off free.
Strategic Significance of the 2013 Budget Deal
The budget deal just concluded fundamentally represents a continuation of deficit cutting for the rest of us, while letting defense corporations and spending off the sequester hook. The budget deal ‘narrowly defined’, at $63 billion restoration of sequester cuts, is misleading at best. While defense spending is restored in the budget deal, Republican and Democrat claims that domestic program spending is also restored is a cynical lie. The $31 billion in domestic spending does not include parallel cuts of $25 billion to unemployment benefits and an additional minimum of $8 billion to food stamps. And when the $26 billion in ‘fees’ are factored in—impacting retirees, vets, government workers, and consumers—the net effect is further spending reductions and continued austerity for the rest, while the Pentagon and corporate military contractors are now exempt.
Contrary to the media spin, there is a grand bargain in progress. It’s just dispersed, implemented over the course of several years since 2011 and in stages. It is being rolled out in segments and in phases. The August 2011 deal. The phony Fiscal Cliff deal. Now the budget deal of 2013, in which defense spending cuts area fully restored while a ‘smoke and mirrors’ game is being played with domestic discretionary spending.
With regard to the ‘smoke and mirrors’, politicians are using the ‘playbook’ of corporate management in union negotiations. They are simply ‘moving the money around’—i.e. restoring $31 billion, which is then taken away in other ways at the expense of government workers, vets, and unemployed.
In a broader strategic sense, what the recent December 2013 budget deal represents is that both wings of the single party of corporate interests (POCI) in the US have been pursuing a piecemeal grand bargain strategy. First $2.2 trillion in spending only cuts are enacted in 2011, leaving the issue of $4.6 trillion in Bush tax cuts to the ‘fiscal cliff’ tax deal of December 2012. Once the tax hikes on the rich were moved off the table with the fiscal cliff deal, the focus shifted to getting the defense spending cuts also ‘off the table’ and minimized.
The rich got to keep $4 trillion of the $4.6 trillion with the fiscal cliff deal; the defense corporations and Pentagon now can avoid the $600 billion in previously scheduled defense spending cuts. In the meantime, $1 trillion in 2011 social program spending cuts went into effect and continue, the $500 billion in sequester defined social spending cuts also largely continue, and unemployment and food stamp cuts of hundreds of billions over the coming decade are also implemented. That all amounts to austerity continued via implementation of a grand bargain in stages.
And the game of smoke and mirrors is not over. More phases of the grand bargain in stages are yet to come. What remains is passage of a new tax code, which will include hundreds of billions more in corporate tax cuts. The fiscal cliff addressed tax cuts for wealthy individuals, not their corporations. Now the latter want their tax cuts as well. That potentially is on the agenda in 2014.
Then there’s the matter of ‘entitlements’ spending—i.e. social security and medicare. The official ‘spin’ of the current budget deal is that entitlements are not being touched and aren’t part of the deal. Republicans and the Teaparty faction have not demanded additional entitlement cuts in the current deal. That does not mean social security and medicare won’t be cut in 2014, however.
Obama’s 2014 budget calls for no less than $620 billion in social security and medicare cuts over the coming decade. Apparently Republicans and Teapartyers considered that sufficient for a ‘first bite of the apple’. But they’ll be back for more in the final stage of the grand bargain by increments. Entitlement cuts will not be addressed during an election year of 2014. That comes later, and after corporate tax cuts in 2014—which both Obama and the Republicans have been both on record proposing for some time.
Jack Rasmus is the author of the 2012 book, ‘Obama’s Economy: Recovery for the Few’, published by Pluto Press and Palgrave. He hosts the weekly radio show, Alternative Visions, on the Progressive Radio Network. His website and blog are: www.kyklosproductions.com and jackrasmus.com, and his twitter handle, @drjackrasmus.